International rating agency Standard & Poor's (SAP) has assigned two different outlooks for the country's two premier financial institutions, the Industrial Development Bank of India (IDBI) and the Industrial Credit and Investment Corporation of India (ICICI).
Both the financial institutions have a near-sovereign rating for the long-term foreign currency rating as BB+. However, IDBI has a positive outlook, while the outlook for ICICI is a notch below at stable.
SCICI was merged with its holding company ICICI earlier this year in April 1997. ICICI did this to consolidate its position in the term-lending segment where it faces stiff competition from the big brother IDBI. SCICI was merged with ICICI in a bid to have a strong unilateral balance-sheet.
A strong balance-sheet always cushions an organisation from unforeseen or unaccounted volatility, said an S&P official.
This can be seen from the Barring's case where $1.2 billion loss wiped out the 200-year-old bank. A similar amount only created small ripples in the case of Daiwa bank. "Daiwa was able to absorb the loss as it had a big and strong balance sheet.
However, a large balance sheet is not an insurance for perpetual existence.
Hence, though the balance sheet of ICICI has become stronger and bigger, several other factors have also to be considered to give it a positive outlook, the official said.
Apart from capital adequacy and the non-performing assets in a portfolio of an institution, quality of assets is also considered. "The rationale is in the event of assets goring bad or the project becoming unfeasible, how much does the institution stand to recover? According to S&P, ICICI has a stable outlook and IDBI as positive, said the official.
That apart, unlike ICICI, IDBI still continues to be majorily owned by government. This also reduces the risk profile. However, in view of easy absorption of the merger, ICICIs outlook will undergo a change, S&P officials point out.
